Malta: since 2011 the nerve centre for Russian billionaire Oleg Boyko’s multi-million fast loan company. His clients face interest rates that rocket to over 700% in foreclosures, but the millions flowing into his companies here can get taxed at just 5%. And it is all legal

He is co-owner of cable and satellite catwalk channel Fashion TV, a Russian billionaire who made his fortune during the ex-USSR’s privatization frenzy in the 1990s, before turning to gambling, media and financial services. And one of his recent major investments is in the fast loans business, where his companies supply small amounts of money to those in desperate need of cash, but who repay the loans at massive interest rates.

52-year-old Oleg Boyko is the 75th wealthiest Russian (€1.2 billion worth), but has an Italian passport, enjoys all the rights of an EU citizen, holds a fortune in Cyprus and the Bahamas, and his pay-day loan empire, 4Finance, happens to be ‘headquartered’ in Malta. Naturally, for tax purposes.

Originally, 4Finance was a Latvian start-up owned by eight Latvian and Russian founders and shareholders before it was acquired for over €105 million by Boyko. All tax practices here are legal, allowing Boyko’s fast loans empire to minimise its tax exposure to almost just 5% tax on profits – thanks to the generous six-sevenths rebate on corporate tax – while clients of the pay-day loan companies across Europe and now, some US states, suffer under near usurious repayment terms.

Extortionate interest rates

One of the victims caught up in the fast loan vice is Daniel*, a Romanian national who is still in his 30s, and following a complicated treatment for lymphatic cancer. Despite Romania’s free healthcare system, patients have to pay for essential drugs and bribe doctors, nurses and orderlies for medical services – costs that can cripple a family’s finances. When Daniel ran out of options after borrowing money from relatives, friends and banks to buy the medicine for his cancer treatment, he turned online to fast loan company Zaplo.

So in November 2015, he took out an 800 Romanian lei (€175) loan in his wife’s name, who had a better credit history. When he could not pay the loan in time as bills mounted at home, within two months he was facing a request to pay double the loan, €350. A slew of letters from Zaplo followed: the deal was that he would pay the €305 in two tranches.

“But after you tie yourself up, you cannot get rid of them,” he says now. When he couldn’t pay the second part, Zaplo took the case to court. And in February 2017, the court imposed a €575 (2,657 lei) foreclosure, which included €353 in penalties – so the effective annual interest rate became 1,988%.

“Without any warning, after several months, my wife received a notice from a bailiff that her account would be blocked,” Daniel says. The amount they needed to pay also included €100 for the bailiff. His wife’s entire monthly income was frozen. “They deprived a family of its food,” Daniel says.

After his cancer treatment, he left to work in Germany to cover his debts. He had no money to file a court appeal.

Daniel’s case is not the only one. Zaplo’s Romanian branch was involved in 1,570 foreclosures between June 2015 and April 2017. Indeed, the business depends on customers not paying their loans back in time. And it is one of some 17 European subsidiaries of 4Finance.

At interest rates that finally reach some 2,000% a year, such extortionist rates have caught the eye of the Finnish Consumer Ombudsman, who has applied for an injunction on the 4Finance subsidiary there on the grounds of unlawful credit granting practices – stating that a €2,010 credit could balloon into €4,145 in just six months over late payments.

The Lithuanian Central Bank has accused a 4Finance subsidiary of multiple legal violations. In Denmark, 4Finance subsidiary Vivus violated consumer laws by stating on the website that interest rates on loans was 19%. The Danish ombudsman says the correct figure should be 730%. Vivus paid a €40,000 fine for incorrect marketing.

And yet, while such fast loan deals prey on Europe’s vulnerable citizens, the actual company itself is avoiding as much tax as possible thanks to its complex set-up across Luxembourg, Cyprus, Panama, the Bahamas, and also Malta.

The fat cats of Malta

You have to give it to the owners of 4Finance: its original owners joined forces in a company called Fatcat Investments (later FCI) before they sold off the whole operation to Boyko. They could have hardly chosen a better company name for what they claim is Europe’s largest and fastest-growing online loan group, having dished a total of €4 billion in 11.5 consumer loans.

So what do the Malta Files reveal about the way Boyko controls his business empire through a network of offshore companies?

One of the major centres of his business empire is Cyprus company Tirona Limited, whose trustee is hidden in Nassau, Bahamas. According to documents obtained by the European Investigative Collaborations, the trustee is controlled by Feldmans Services, which is ultimately owned by Oleg Viktorovich Boyko.

Tirona is actually part of Boyko’s Finstar Financial Group, but it is Feldmans Services Limited that controls the company. And it is through Tirona that Boyko acquired 4Finance in Malta.

Originally, 4Finance was set up in 2008 in Latvia, establishing itself later with eight owners with strong ties to the political elite, notably among them, Edgars Dupats, son-in-law of former Latvia prime minister Andris Skele (a sort of ‘Berlusconi of the Baltics’).

4Finance was owned by the Malta company Fatcat Investment Ltd, whose eight owners were themselves individually hidden behind companies all registered at the same Belize City address: Estimate Investing, Sommer Invest, Summit Finance, Walsden Invest, Verveks Invest, Wealth Investments, and Prosperity Financing. Another shareholder had his ownership vested in Cypiot company Vertice Consulting.

That month Boyko started his acquisition of a 75% stake in 4Finance, using Tirona Limited to pay Fatcat €55 million. An up-front €12 million payment pushed Fatcat profits that year to €26 million: taxes paid in Malta were just €2 million, a 7% rate.

In 2012, the additional €43 million was transferred to Maltese bank accounts. The Latvian shareholders who sold their shares enjoyed the benefits of Malta’s tax system, with Fatcat paying just €366,762 in tax on €43 million profits.

This is thanks to Malta’s imputation tax system, which charges companies the highest income tax rate of 35%, but then refunds up to 6/7ths of this tax if the company’s activities and shareholders are mainly based abroad. Additionally, in Malta there is no withholding tax on dividends, interests and royalties. And Maltese tax on capital gains for non-residents, which should include Boyko’s purchase of shares in 4Finance, is a whopping zero per cent.

In 2013, Fatcat was restructured into FCI Investments, and Boyko’s Tirona proceeded to buy the rest of the 25% shareholding in 4Finance at €51.6 million, according to an “option deed” signed in December.

That year, FCI shareholders received €57 million in “interim dividends” and on 1 January, 2014 took an additional €57 million in dividends – €114 million.

And then they used shareholder loans to take the money out of Malta.

As revealed in the FCI trial balance of 2013, a €57 million tranche was paid to shareholders in December in the form of loans from the company to them. On 12 December, FCI shareholders – companies like ABS Holding and G-Interactive – started receiving their cash in their Sparkasse Bank Malta accounts.

The signed financial statements for 2013 shows FCI paid just €512,000 in taxes that year, a year that registered €57 million in profits and €106 million net cash flow from financing. The other €57 million in dividends was carried forward to 2014.

On 1 January 2014, the shareholders to whom the FCI paid out the loans, set-off the ‘debt’ with the share transfer, basically the dividends they were now forgoing since they had already been paid with the loan.

For example, Uldis Arnicans’s G-Interactive (one of the FCI shareholders) was granted an €18.4 million loan that was ultimately set-off by €18.2 million worth of shares. Accounts for G-Interactive indeed declare €18.6 million in dividend income. But a tax refund claim dated 17 October, 2014 shows no sign of the dividends, except for a much smaller sum – €1.09 million of gross dividends, which carried a 15% tax charge of €163,804 and which later enjoyed a rebate of €109,203, for a total tax of some €54,000.

A Maltese accountant who wishes to remain anonymous said this was fully legal, thanks to an agreement to avoid double taxation signed between Malta and Cyprus in 1994 and the fact that the capital gains of foreign residents are not taxed in Malta.

So at least €40.7 million of the cash that Oleg Boyko’s Cypriot company Tirona paid to Fatcat back in 2013 for shares in 4Finance, are “exempt income” and were not taxed in Malta – something confirmed by the income tax return of FCI filed on 8 August, 2013.

And then again, the Maltese companies with their Latvian beneficial owners who had received over €100 million for Boyko’s acquisition, now had to funnel the money out to themselves as ultimate beneficial owners.

So again, a shareholder-company like G-Interactive (owned by Uldis Arnicans) issued a €2 million loan on 18 March, 2014 to a Latvian company, SIA ZOL28, which is represented by Arnicans himself, and who, as a tax-resident of Monaco, enjoys 0% tax on foreign personal income. That same day another €2 million was loaned to Arnicans’s other company, SIA UG-70, and three days later, another €3.5 million to the Luxembourg company 4Finance Holdings SA.

Up until its liquidation in September 2015, G-Interactive assigned all loans to Arnicans himself and other companies that did not need to pay them back. Loan proceeds are not taxed – only interest is usually subject to taxation.

Another major FCI shareholder – Aigars Kesenfelds of ABS Holdings who took over €18 million for selling his shares in 4Finance – used the money to give credit lines to other company start-ups. All these proceeds were taxed in Malta – in 2013, when ABS Holdings’ profits reached €12.3 million, it paid just 4.6% in tax, €576,000.

When looking at the whole picture, the presence of FCI Investments in Malta allowed the proceeds of over €100 million from Oleg Boyko to buy 4Finance without paying tax on capital gains and for the beneficiaries to pay as little tax as possible.

When asked about how much tax they paid, only shareholder Edgars Dupats – who is now a partner in Boyko’s Tirona Limited – answered. “The undertakings of private business companies, including those with my participation and shareholder status, are supervised and audited in line with the laws of respective jurisdiction and best industry practice. Regarding your questions on holdings in other jurisdictions, the need to establish a legal entity in a particular jurisdiction arises from business requirements of its shareholders. Given the fact that the particular jurisdiction of Malta operates under the Common Law, such [a] legal structure allows [us] to secure fast and quality resolutions of any shareholder disputes.”

Malta: central vehicle

Now with Boyko taking full control over 4Finance, he liquidated FCI Investments and controls the loan company through Tirona Limited of Cyprus. Boyko is hidden in the company structure behind his mother Vera Boyko, the beneficial owner of 49% of shares, which is controlled by nominee shareholder Loucas Andreou. The remaining 51% is equally shared between Dupats amd Uldis Arnikans.

Boyko then set up 4Finance Holding in Luxembourg, and opened subsidiaries in more than 17 countries, issuing hundreds of millions in bonds on the Irish, Luxembourgish, Stockholm and Frankfurt stock exchanges.

From 4Finance SA in Luxembourg, a Maltese branch of 4Finance, without a single employee, collected over €55 million in interest between 2013 and 2015 from the 4Finance subsidiaries in some 21 countries. A spreadsheet ‘Lux_Interest_30112015’, shows that interest from Poland, Spain, Sweden, Finland, Denmark and other countries shifted these profits to Malta, into an IIG Bank account. Most of the interest on company shareholder loans had a 15% interest rate.

What could be problematic about this is if tax authorities find that these shareholders loans are at significantly higher interest rates than those available on the local market over a specific time. In this case, such high-interest loans could be an unjustifiable transfer of money from a local subsidiary to a parent company.

Annual accounts show the Malta branch received €24.9 million in interest income from 4Finance subsidiaries in 2014, and €32.2 million in 2015. Impairments eroded profits so that just hundreds of thousands were paid in tax.

4Finance did not reply to comments on this issue.

All these Maltese structures would not be possible without the services of Maltese-based Credence Corporate and Advisory, shortened to Credence, which is connected to law company Muscat Azzopardi & Associates. The latter was founded in 1971 by former UN judge in Kosovo Godwin Muscat Azzopardi, while his sons James and Adrian Muscat Azzopardi later founded Credence with partners Andrew Cefai, Claudio Tonolla and Ivan Vella.

All these persons above mentioned were nominee directors in corporate structure owned by Boyko and his Latvian partners, who managed to funnel through Malta dozens of millions Euro without paying significant tax. Credence company and Andrew Cefai, who is nominee director of 4finance Malta Ltd and GMLA Trading Ltd did not answer our queries

USA: the Native American loophole

Among the subsidiaries paying high interest rates for inter-company loans to the Malta branch is 4Finance US Holding Inc., registered in another tax haven, in Delaware, USA. The company manages the fast loans services of North Star Finance LLC, a company that is ultimately owned by the Fort Belknap Native American Indian community of Montana.

Again, a Maltese company, GMLA Trading Limited is used as a vehicle to transfer the interest paid by US citizens on these fast loans, to Boyko’s Tirona Limited. GMLA registered losses in Malta when it passed on some €3.2 million of interest from US clients to Tirona between 2012 and 2014. No taxes get paid on losses.

North Star Finance LLC, which operates the Northcash brand, cannot lend to residents of Arkansas, California, Georgia, Maryland, Minnesota, Montana, New York, Pennsylvania, Virginia and West Virginia. When in March 2017 the Washington State Department of Financial Institutions (DFI) published complaints it received about some online lenders, including North Star LLC, it couldn’t do anything.

“It appears that these companies may be operating as online tribal payday lending companies. These companies assert ownership by the Fort Belknap Indian Community, a federally-recognized Indian Tribe. These companies are not licensed by DFI and are not registered to conduct business in Washington State by the Department of Licensing, the Department of Revenue, or the Secretary of State,” they explained.

The directors of GMLA Trading Ltd, Tirona Limited and their major beneficial owner Oleg Boyko would not respond to written questions.

Boyko’s employees at Finstar have also inquired about the possibility that the Russian millionaire obtains residency in Malta under the Global Residence Programme, a special high-net worth individuals scheme that predates the Maltese sale of citizenship. When asked if he succeeded, Boyko didn’t answer.

*Daniel is not his real name. He preferred not to reveal his identity, as he is working for a public institution.

This investigation was developed with the support of Journalismfund.eu